Matching risk, cost key to continuing coverage

Some of the recent furor over federal aid for Hurricane Sandy victims echoes a long-standing debate on how to help those hurt by natural disasters while discouraging actions that put them at risk in the future.

Congress last week authorized the Federal Emergency Management Agency to borrow up to $9.7 billion to pay out federal insurance claims from the late October storm.

The National Flood Insurance Program has been in a deep financial hole since multiple hurricanes, including Katrina, hit the U.S. coast in 2005. A reprieve from storms has helped, but more has to be done.

Federal flood insurance, required for homes with federally backed mortgages or from federally regulated institutions, has generated a lot of debate since it was created in 1968.

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Matching risk with real costs has been a major source of contention. Cheap insurance encourages building in the wrong places, and in some instances, repeated building in the wrong places.

Even as local residents bemoan what they see as too expensive insurance coverage given our storm history, they should recognize the flood insurance subsidies many have enjoyed over the years.

But change has come. This summer, Congress made substantive fixes to the flood insurance program as it extended until 2017 the National Flood Insurance Program. (The program had been extended temporarily 17 times since 2008 and allowed to lapse twice.) The five-year extension brings much-needed stability to a program particularly critical to our area.

The Biggert-Waters Flood Insurance Reform Act of 2012 also brings a dose of fiscal reality. It includes phasing out over several years subsidized insurance rates for properties that experience repeated flooding and raising the cap on annual flood insurance premium increases from 10 percent to 20 percent.

People with homes built before 1968 and those with second homes in flood-prone areas will see subsidies go away. Properties that existed before the program began in 1968 were grandfathered in without owners being required to take steps to reduce risk. Updated flood plain maps will take into account information about rising sea levels and changing weather patterns. An independent technical mapping advisory council will help with mapping disputes.

The new law also requires the flood insurance program director to come up with a plan to repay the $17 billion debt from the 2005 storm season.

While these changes might be painful to some people's pocketbooks, it only makes fiscal sense. We couldn't continue to encourage risky building with subsidies that didn't recognize geographic, climactic and financial realities.

The National Association of Realtors praised the new law, particularly because it took away a lot of uncertainty with the five-year renewal. The group says a two-week shutdown of the program in 2010 stalled 40,000 home sales.

It also ensures continued access to the program, including for second homes and vacation homes. That's good news even without previous subsidies.

The changes also emphasize the work done by local government officials to reduce flood risks and the cost to insure properties. In December, the city of Beaufort saw its risk rating improve because of its regulatory standards, stormwater management and drainage system maintenance.

City officials said the rating change from 8 to 7 could mean as much as 15 percent savings on premiums.

Beaufort County was upgraded from 7 to 6 earlier in 2012, and premiums for some residents in unincorporated areas were expected to drop as much as 20 percent. In 2010, Hilton Head achieved a Class 5 rating, which brings a 25 percent discount to policyholders.

With the new law and its reduced or eliminated subsidies and updated flood information, we should be able to better match risk and the cost to insure properties in flood-prone areas.

Some property owners in New Jersey and New York who didn't have flood insurance are getting that lesson. Federal officials are subtracting the cost of three years of flood insurance from the aid they receive. If they don't have flood insurance the next time a storm hits, they won't get federal aid. That's as it should be.